CEO SUMMARY: Once again, the use of deeply-discounted lab test pricing to win exclusive managed care contracts is involved in a court case. However, this latest private lawsuit is different from earlier cases because it seeks to preserve competition in the lab testing and the managed care contracting marketplaces, said an attorney for the four plaintiff labs that brought the case. Citing the Sherman Act and the Cartwright Act, the latest case seeks to preserve competition and stop allegedly unlawful business practices.

BY ALLEGING that a national laboratory company and several national health insurance organizations have violated the federal Sherman Act and California’s Cartwright Act, plaintiffs in a recently-filed lawsuit are raising new legal issues that involve pricing and managed care contracting practices that are commonly used by lab companies and health insurers.

It is a lawsuit without precedent in the clinical lab testing industry. That’s because one component of this legal case accuses the defendants of having engaged in behavior that violates federal antimonopoly and restraint of trade laws.

The second component of the lawsuit involves claims that the defendants took actions that constitute unlawful, unfair, and/or fraudulent business practices under California law.

To learn more about the legal strategies of this lawsuit, THE DARK REPORT spoke with Justin T. Berger. He is an attorney with Cotchett, Pitre & McCarthy, LLP, and represents the four plaintiff lab companies in this case. They are: Hunter Laboratories LLC (Burlingame), Pacific Breast Pathology Medical Corporation (Novato), Rheumatology Diagnostics Laboratory Inc. (Los Angeles), and Surgical Pathology Associates (Los Gatos).

“Antitrust laws were enacted in the United States and in California because it was recognized that healthy competition outweighs whatever benefit there may be from the short-term efficiencies that might result from a monopoly,” explained Berger.

Antitrust and Monopoly Issues

“In healthcare, price is an issue, but that does not justify squashing competition,” he said. “Monopolies are unhealthy for consumers and the economy.”

This lawsuit was filed in the U.S. District Court for the Northern Division of California in San Jose in November. The plaintiffs accused Quest Diagnostics Incorporated, Aetna Inc., Blue Shield of California, and the Blue Cross and Blue Shield Association (BCBSA) of conspiring to monopolize and restrain competi- tion for routine, molecular, and specialty testing services.

Berger and his law partner, Niall McCarthy, represented one of the plaintiffs in an earlier case. In 2005, the CEO of Hunter Laboratories, Chris Riedel, alleged in a whistleblower case that seven California lab companies billed the Medi-Cal program improperly. The defendant labs paid more than $300 million last year to settle the case with the California Attorney General (See TDRs, April 6, 2009; February 7, 2011; and June 13, 2011.)

Although some of the alleged market actions are similar to the earlier case, the legal claims at issue in the current lawsuit involve different federal and state laws. “The earlier State of California case focused quite narrowly on the low-price rule and not on the issue of preserving competition in the market,” said Berger.

“The low-price rule requires providers to give the state [and its Medi-Cal program] the lowest price that they offer other customers for comparable services,” he noted. “And that low price is part of an effort to win other business from customers.

Sherman Act Violations

“Our current lawsuit focuses on discounted pricing in the context of how it is used by the defendants in violation of the Sherman Act and the Cartwright Act,” he said. “These two laws specifically address competition.

“This latest case also is different in that it has some national implications,” continued Berger. “We cited the federal antitrust laws because certain of these business practices affect small and mid-sized laboratories throughout the United States. “

Another issue of this lawsuit also has national implications,” he stated. “It addresses the changes the Blue Cross Blue Shield Association has made to the Blue Card program. Even though the Blue Card program changes were only recently implemented, they are having a definite and traceable effect on labs.

“To minimize the negative impact of the Blue Card program changes, laboratories are attempting to get into the networks of Blue Cross and Blue Shield plans in those states where they have patients and referring doctors,” said Berger. “But so far, they are not able to gain entry to those networks for reasons described in the lawsuit.

“The results of all the actions we cite is that our plaintiffs have been harmed—and continue to be harmed—by losing accounts and by not being able to get new accounts,” Berger said. “That’s why we will seek injunctive relief to stop some of the more egregious practices.”

Complaint Alleges Efforts to Cut Labs from Networks

HEALTH PLANS NATIONWIDE are narrowing their provider networks by eliminating some local and regional labs from the panel of contracted providers available to patients. (See TDRs, April 2, 2012; June 4, 2012; and December 10, 2012).

Four California clinical lab companies are challenging these exclusionary business practices in a complaint filed in the U.S. District Court for the Northern Division of California, in San Jose. The plaintiffs claim that such actions are in violation of antimonopoly and restraint-of-trade laws of the U.S. Government and the State of California.

One example alleged in the lawsuit is that Quest Diagnostics persuaded Aetna and Blue Shield of California to terminate the in-network status of Quest’s smaller competitors in exchange for Quest offering financial and other incentives. The complaint also describes how Quest and Aetna entered into a contract whereby Aetna agreed to terminate 400 regional contracts across the United States, thus increasing Quest’s dominance in multiple markets.

All the defendants have denied the charges of the lawsuit and stated that they will defend themselves vigorously.